Buying new build before selling current home

Sophie322

We are looking to purchase a house on a new build development. A plot that we are interested in has just been released and is likely to sell quickly. The house is predicted to be built by November/December time, although the foundations have only been built so far so this could change!

Currently we live in a much smaller house on which we have paid off the mortgage. Having spoken to a mortgage advisor, we should be able to borrow just enough to purchase the new build on the basis of our salaries and some savings, without selling our current home. As we would need to reserve and exchange on the new build within 4 weeks, doing this would enable us to secure the new house before we have sold our own.

What we would then plan to do is sell our current house over the next few months and aim to move out when the new build is completed (to save us on moving twice and renting). Obviously this would mean that we would be getting a much larger mortgage than we need on the new house, but the mortgage advisor said that we could apply for a mortgage with no early repayment charges so that we could then pay off the proceeds of the sale from our current house.

Just wondering if anyone has any advice about this and if there is anything else in terms or risks/costs that we should be aware of? I think we would incur additional stamp duty charges if we didn’t sell our house until after we have moved into the new one, but I believe these can be reclaimed?

eidand

I am no expert but I think there's an extra tax, if you buy the property while owning another one. You might want to check up on that. ideally you want to sell the first property before you buy the second.

relevant link : https://www.gov.uk/stamp-duty-land-tax/residential-property-rates

relevant text:

"You!!!8217;ll usually have to pay 3% on top of the normal SDLT rates if buying a new residential property means you!!!8217;ll own more than one."

franklee

Sophie322 wrote: »

What we would then plan to do is sell our current house over the next few months and aim to move out when the new build is completed (to save us on moving twice and renting).

Might be tricky to find a buyer over the next few months so far in advance of the build. Usually you exchange contracts on the new build without a fixed completion date and then you have to complete on notice. Expected dates can slip but you should get a long stop date put in. The upshot is you would have to find a very understanding buyer who would exchange to buy your current house on notice and wait along with you possibly for months. If your buyer is not chain free then their buyer will have to agree to complete on notice also etc.

Issues that can arise if dates slip are mortgage offers running out etc.

You will not incur the second home stamp duty though.

OTOH if you buy and complete on the newbuld first and then sell your current home you will incur the extra stamp duty but have 3 years to sell and claim it back.

Logistically this is the easier route as you won't have to muck about with chains but keeping both properies duing the overlap will cost something.

SDLT_Geek

Would the seller do a part exchange? It could save you from having to fund the 3% surcharge until your sale. It would make practical arrangements for you easier.

dimbo61

If you do have the money to pay the full stamp duty and deposit and can get a mortgage consider an offset mortgage.
When you sell your existing home you can put the money you receive into the offset account.
You can claim back the extra stamp duty provided you sell your existing main residence within 3 years ( I Believe )

Sophie322

Thanks for all your replies. Will have a look into the offset mortgage! We did ask the builder about doing a part exchange but they said that we would be better to sell ourselves, as they would give us quite a lot less than the market value for it and it's a first time buyers house in a good location, so hopefully shouldn't be too hard to sell. It's difficult to know whether we would be best to list our current house as soon as we exchange on the new build or wait a while, so that we aren't expecting our prospective buyers to wait as long!

kingstreet

Sophie322 wrote: »

It's difficult to know whether we would be best to list our current house as soon as we exchange on the new build

You'll be exchanging contracts "on notice" without a fixed date and the completion may end up being later than expected due to adverse weather.

Ideally, you want an acceptable offer on yours towards the end of September beginning of October but your buyer may be expecting completion before Christmas and you will not be able to guarantee this.

c_tyler

We are on a similar (but a bit worse) position. We are planning on moving out of our current home, and saw this new development going on nearby. We are both very interested on it, but the house we want hasn't even been released yet, we are still on a mortgage with our current home (we just started two years ago!), and the builders are not very keen on part exchange.

We are thinking about putting our house on the market ASAP as we think it might take a while before the house is sold. But without any idea about when the new house would be ready, I don't really know what to do.